In June and August of 2008, the SEC issued two third-party subpoenas to Brian Hollnagel and BCI Aircraft Leasing (BCI) in connection with other federal litigation. Over several weeks, BCI produced a significant amount of material. The SEC found problems with each production and requested additional information. The SEC ultimately became frustrated with what it believed to be inadequate compliance. On August 28, it filed a motion for a rule to show cause why BCI should not be held in contempt. The notice of motion indicated that the SEC would appear in court on September 3 and "seek a hearing date" on its motion. On September 3, BCI did not appear and the SEC asked the court to order a complete and proper production, to hold BCI in contempt, and to award attorney's fees. The court did so. It then issued two orders. The first indicated that the matter was continued to September 10 and asked for BCI's response to the motion by September 5. The second order was prepared by the SEC -- it held BCI in contempt, it ordered a full and complete production by September 5, it imposed a $1000 per day fine for noncompliance, and it awarded attorneys fees. The court vacated its first order the following day. Although BCI filed a substantive response, the court struck it as moot. Eventually, Judge Lindberg (N.D. Ill.) found that BCI had substantially complied with the subpoenas and rescinded the fine. He did not, however, vacate the contempt finding or the award of fees. BCI appeals.

In their opinion, Circuit Judges Posner and Sykes and District Judge Van Bokkelen vacated the contempt order. The Court first rejected BCI's argument that the subpoenas, which were issued by the SEC attorney, were not court orders and could not therefore be the basis for a contempt finding. Rule 45 of the Federal Rules of Civil Procedure is on point. Rule 45(e) specifically states that a court may hold a person in contempt for failure to comply with a subpoena and does not distinguish between a subpoena issued by a court or one prepared by an attorney. The Advisory Committee Notes make the point even more clearly. The notes, however, also make it clear that a court's contempt power should be used more sparingly and with greater attention to the non-party's rights when the subpoena is issued by an attorney. Although BCI did not exercise its rights to object to or move to quash the subpoenas, it was certainly entitled to adequate notice of an attempt to hold it in contempt. At a minimum, the SEC was required to give notice of the place and time for a hearing. Here, the Court noted that the SEC could have simply moved for a finding of contempt and provided notice to BCI of the time and place when it would appear on its motion. But it did not. Instead it used the obsolete and unnecessary “motion for rule to show cause” procedure. Under that procedure, the first appearance of the parties seeks only a preliminary order directing the alleged contemnor to "show cause" why it should not be held in contempt. The Court concluded that the SEC, having chosen to proceed in a certain manner, should be held to the traditional practice associated with that procedure. BCI did not have adequate notice that a hearing on contempt was to be held on September 3.